Employment Law This Week®: Break Pay, Misclassification of Franchisees, California Computer Professional Exemption, Non-Compete Payment

(1) Third Circuit Finds That Break Pay Does Not Offset Unpaid Overtime

Our top story: Compensation for breaks does not offset unpaid overtime, says the U.S. Court of Appeals for the Third Circuit. Three manufacturing workers sued their employer for requiring unpaid work outside of their regular shifts. The employer argued that the workers were paid for breaks during their shifts, which offsets any overtime pay that they might be entitled to for time spent changing into and out of their work attire. In a case of first impression, the Third Circuit reversed a lower court’s decision and found that the company could not use compensation that was included in an employee’s regular rate as a credit against unpaid overtime. John O’Connor, from Epstein Becker Green, has more.

“The Third Circuit looked at the language of the statute, saw that the statute provided three narrow exceptions when an offset would be permitted, and because neither of the three expressly permitted offsets applied to this situation, the court concluded the offset could not be taken. . . . I think the implication of this decision is that the courts are going to narrowly interpret the FLSA, and they’re not going to permit employers to take offsets that the statute doesn’t expressly provide for. I think the courts are looking to protect the employees and make sure they’re paid for all time worked.”

(2) Two Lawsuits Allege Misclassification of Franchisees

Joint employment remains a key focus for private plaintiffs and government agencies, and franchise arrangements are drawing special scrutiny. Last month, the Third Circuit upheld the certification of a class action in one such case. The action claims that 300 Jani-King franchisees in the Philadelphia area are actually employees who can bring wage claims against the company. And last week, the Department of Labor (DOL) joined in, filing its own suit, claiming that Jani-King assigns cleaning contracts, sets rates, and collects payments for Oklahoma franchisees—making them economically dependent on the company. The DOL suit argues that the cleaning personnel should be classified as employees and that Jani-King should be required to keep records of their wages and hours in compliance with the Fair Labor Standards Act.

(3) Minimum Salary for Exempt California Computer Professionals Increases

The compensation threshold for California’s computer professional exemption will rise. Starting January 1, California employers must pay computer professionals $42.39 an hour or a salary of $88,318 per year to utilize the computer professional exemption. This reflects an increase of 1.3% above current rates. Employees must also continue to satisfy the duties test required for the exemption. The new federal white-collar salary thresholds that go into effect on December 1 of this year will not impact the computer professional exemption.

(4) Employer Must Abide by Non-Compete Payment

An employer cannot waive its own non-compete agreement to avoid payment, unless the agreement specifically grants it the right to do so. An employee of a financial services firm in Illinois signed an agreement that required a six-month post-employment non-competition period in exchange for $1 million from his employer. When the worker resigned, the employer sent a notice waiving the agreement and telling the employee that it would not pay him the $1 million. After waiting out the six months, the employee filed suit against his former employer. The Illinois Court of Appeals found that there was no provision in the agreement that allowed the employer to change the terms without consent from the worker, and because the employee upheld his end of the contract, the employer must pay him what is due. For more information, please click here.

(5) Tip of the Week

In celebration of Global Diversity Awareness Month, Rebecca Shambaugh, President of SHAMBAUGH Leadership and best-selling author of It’s Not A Glass Ceiling, It’s A Sticky Floor, offers some advice on creating more inclusive leadership for the 21st century.

“To really achieve gender balanced leadership, what I reference as integrative leadership, we all have to be in. We all have to see ourselves as part of that solution. . . . Our workforce and leadership organizational competencies are changing, because the environment has changed. So many of our systems are outdated, and I encourage people, when we work with them, to really look at their hiring practices, to look at their recruitment, their talent review practices, and ensure that there isn’t a bias there, that they're looking at the same types of styles and thinking and backgrounds and experiences that could unintentionally cause women not to get those opportunities, or at least be considered for those.”